UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to __________
------------------------
Commission file number 1-7725
I.R.S. Employer Identification number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered March 31, 1997
---------- ---------------- -----------------
Common stock, New York Stock Exchange 73,447,760
$.10 par value Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No .
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<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Retained Earnings --
Three and Six Months Ended March 31, 1997 and 1996..................3
Consolidated Balance Sheets --
March 31, 1997 and September 30, 1996...............................4
Consolidated Statements of Cash Flows --
Six Months Ended March 31, 1997 and 1996...........................5
Notes to Consolidated Financial Statements..........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............14
Item 6. Exhibits and Reports on Form 8-K................................15
SIGNATURES................................................................17
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<PAGE>
FINANCIAL INFORMATION
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(in millions except per share data)
For the Three and Six Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
<S> <C> <C> <C> <C>
Revenue ............................................................ 1997 1996 1997 1996
------- ------- ------- -------
Leasing
Operating ..................................................... $ 402 $ 330 $ 792 $ 646
Direct financing .............................................. 36 39 72 79
Sales-type .................................................... 68 49 132 89
------- ------- ------- -------
Total leasing .............................................. 506 418 996 814
Sales ........................................................... 59 74 105 125
Continuity and network services ................................. 85 78 169 148
Other ........................................................... 40 11 53 24
------- ------- ------- -------
Total revenue ................................................. 690 581 1,323 1,111
------- ------- ------- -------
Costs and expenses
Leasing
Operating ..................................................... 316 249 621 484
Sales-type .................................................... 43 35 89 59
------- ------- ------- -------
Total leasing .............................................. 359 284 710 543
Sales .............................................................. 49 59 79 100
Continuity and network services .................................... 71 68 142 129
Selling, general and administrative ................................ 61 60 120 120
Interest ........................................................... 73 65 146 130
Other .............................................................. 25 -- 25 --
------- ------- ------- -------
Total costs and expenses ...................................... 638 536 1,222 1,022
------- ------- ------- -------
Earnings before income taxes ....................................... 52 45 101 89
Income taxes ....................................................... 19 17 38 34
------- ------- ------- -------
Net earnings before preferred dividends ............................ 33 28 63 55
Preferred dividends ................................................ (2) (2) (4) (4)
------- ------- ------- -------
Net earnings to common stockholders ................................ $ 31 $ 26 $ 59 $ 51
======= ======= ======= =======
Retained earnings at beginning of period ........................... $ 881 $ 785 $ 856 $ 764
Net earnings to common stockholders ................................ 31 26 59 51
Cash dividends paid on common stock ................................ (4) (3) (7) (7)
------- ------- ------- -------
Retained earnings at end of period ................................. $ 908 $ 808 $ 908 $ 808
======= ======= ======= =======
Net earnings per common and common equivalent share................. $ .38 $ .33 $ .75 $ .64
======= ======= ======= =======
Common and common equivalent shares
outstanding ........................................................ 78 79 78 80
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------- -------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................................... $ 38 $ 29
Cash - legally restricted ............................................................... 27 27
Receivables, net ........................................................................ 259 218
Inventory of equipment .................................................................. 182 155
Leased assets:
Direct financing and sales-type ....................................................... 1,599 1,768
Operating (net of accumulated depreciation) ........................................... 3,299 2,842
------- -------
Net leased assets ................................................................... 4,898 4,610
Buildings, furniture and other, net ..................................................... 144 149
Other assets ............................................................................ 374 403
------- -------
$ 5,922 $ 5,591
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable ........................................................................... $ 1,302 $ 1,127
Term notes payable ...................................................................... 373 374
Senior notes ............................................................................ 1,980 1,771
Accounts payable ........................................................................ 126 135
Income taxes ............................................................................ 270 279
Other liabilities ....................................................................... 268 325
Discounted lease rentals ................................................................ 782 781
------- -------
5,101 4,792
Stockholders' equity:
Preferred stock $.10 par value.
Authorized 100,000,000 shares:
8.75% Cumulative Preferred Stock, Series A and B
$25 stated value and liquidation preference
3,562,600 shares issued (3,562,600 at September 30, 1996) ....................... 89 89
Common stock $.10 par value.
Authorized 200,000,000 shares; issued 109,462,152 shares
(108,778,814 at September 30, 1996) ................................................. 7 7
Additional paid-in capital ............................................................ 173 165
Deferred compensation (ESOP) .......................................................... (4) (5)
Deferred translation adjustment ....................................................... (8) 5
Retained earnings ..................................................................... 908 856
------- -------
1,165 1,117
Common stock held in treasury, at cost ................................................ (344) (318)
------- -------
Total stockholders' equity ........................................................ 821 799
------- -------
$ 5,922 $ 5,591
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
For the Six Months Ended March 31, 1997 and 1996
Increase (decrease) in cash and cash equivalents:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Operating lease and other leasing receipts ............ $ 808 $ 705
Direct financing and sales-type leasing receipts ...... 410 476
Leasing costs, primarily rentals paid ................. (14) (18)
Sales ................................................. 118 125
Sales costs ........................................... (35) (63)
Continuity and network services receipts .............. 161 147
Continuity and network services costs ................. (98) (84)
Other revenue ......................................... 29 24
Litigation settlement ................................. 25 --
Selling, general and administrative expenses .......... (119) (117)
Interest .............................................. (144) (127)
Income taxes .......................................... (37) (16)
------- -------
Net cash provided by operating activities ........... 1,104 1,052
------- -------
Cash flows from investing activities:
Equipment purchased for leasing ........................ (1,421) (1,038)
Investment in continuity and network services facilities (29) (34)
Other .................................................. 1 (16)
------- -------
Net cash used in investing activities ............... (1,449) (1,088)
------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................. 200 130
Net increase in notes payable ......................... 175 226
Issuance of term notes and senior notes ............... 524 384
Maturities and repurchases of term notes
and senior notes .................................... (316) (302)
Principal payments on secured debt .................... (199) (324)
Preferred stock purchased ............................. -- (2)
Common stock purchased and placed in treasury ......... (25) (56)
Dividends paid on common stock ........................ (7) (7)
Dividends paid on preferred stock ..................... (4) (4)
Other ................................................. 6 (15)
------- -------
Net cash provided by financing activities ........... 354 30
------- -------
Net increase (decrease) in cash and cash equivalents ..... 9 (6)
Cash and cash equivalents at beginning of period ......... 29 85
------- -------
Cash and cash equivalents at end of period ............... $ 38 $ 79
======= =======
</TABLE>
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
For the Six Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ................................................................... $ 63 $ 55
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily
depreciation and amortization ............................................ 696 525
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ............................ 223 367
Cost of sales .............................................................. 44 37
Continuity and network services costs, primarily
depreciation and amortization ........................................... 44 45
Interest ................................................................... 2 3
Income taxes ............................................................... 2 18
Other - net ................................................................ 30 2
------ ------
Net cash provided by operating activities .................... $1,104 $1,052
====== ======
Supplemental schedule of noncash financing activities:
Common stock issued in acquisition of NetforceMTI ........................... $ -- $ 9
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997 and 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
The balance sheet at September 30, 1996 has been derived from the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996.
Legally restricted cash represents cash and cash equivalents that are restricted
solely for use as collateral in secured borrowings and are not available to
other creditors.
Certain reclassifications have been made in the 1996 financial statements to
conform to the 1997 presentation.
2. Interest-Bearing Liabilities
At March 31, 1997, the Company had $1.5 billion of available domestic and
international borrowing capacity under various lines of credit from commercial
banks and commercial paper facilities, of which approximately $350 million was
unused.
The average daily borrowings outstanding during the six months ended March 31,
1997 were approximately $4.3 billion, with a related weighted average interest
rate of 6.76%. This compares to average daily borrowings during the first six
months of fiscal 1996 of approximately $3.6 billion, with a related weighted
average interest rate of 7.08%.
3. Senior Notes
On November 1, 1996, the company filed a registration statement on Form S-3 with
the Securities and Exchange Commission for a shelf offering of up to $950
million of senior debt securities (which amount includes $100 million of
undesignated securities from a previous shelf registration statement) on terms
to be set at the time of each sale (the "1996 Shelf"). Pursuant to the 1996
Shelf, the Company, on November 21, 1996, issued $250 million of 6.375% Notes
Due November 30, 2001, and, on December 6, 1996, filed a Prospectus Supplement
designating $500 million of the senior debt securities as "Medium-Term Notes,
Series F." The Company sold $190 million of medium-term notes between December
6, 1996 and May 1, 1997. On May 1, 1997, the Company redsignated $50 million of
the then remaining $310 million of medium-term notes, which together with the
$200 million previously unallocated under the 1996 Shelf, were issued by the
Company on May 6, 1997 as $250 million of 6.50% Notes Due April 30, 1999. The
Company sold an additional $57 million of medium-term notes between May 1, 1997
and May 9, 1997. As a result of these sales and the redesignation, an aggregate
of $203 million of medium-term notes remain available for issuance under the
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<PAGE>
1996 Shelf as of May 9, 1997.
4. Common Stock
On May 6, 1997, the Board of Directors authorized a three-for-two split of the
Company's common stock to be distributed on June 16, 1997 to holders of record
on May 23, 1997. Accordingly, all references in the financial statements and
notes to common share data have been adjusted to reflect the split.
During the quarter ended March 31, 1997, the Company did not purchase any shares
of its common stock under its common stock repurchase program. Approximately
141,000 shares were purchased between March 31, 1997 and May 9, 1997 at a cost
of $2.6 million.
The quarterly cash dividend of $.05 per common share will be paid on June 16,
1997 to common stockholders of record as of May 23, 1997.
Earnings per common and common equivalent share reflects the assumed exercise of
stock options that would have a dilutive effect on earnings per common share if
exercised.
-8-
<PAGE>
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Earnings
- ------------
Net earnings to common stockholders (hereinafter referred to as "net earnings")
for the three months ended March 31, 1997 were $31 million, or $.38 per common
share, as compared to $26 million, or $.33 per common share, for the three
months ended March 31, 1996. Net earnings for the six months ended March 31,
1997, were $59 million, or $.75 per common share, as compared to $51 million, or
$.64 per common share, for the year earlier period. The increase in net earnings
in the three and six months ended March 31, 1997 compared to the year earlier
periods is primarily due to increases in earnings contributions from continuity
activities, and, in the current quarter, increases in earnings contributions
from operating and sales-type leases. Earnings per share in the current year
periods benefited from the Company's stock repurchase program, which has reduced
the average common equivalent shares outstanding.
The Company's operating results are subject to quarterly fluctuations resulting
from a variety of factors, including the volume of new leases written, product
announcements by manufacturers, economic conditions, interest rate fluctuations
and variations in the mix of leases written. The mix of leases written in a
quarter is a result of a combination of factors, including, but not limited to,
changes in customer demands and/or requirements, new product announcements,
price changes, changes in delivery dates, changes in maintenance policies and
the pricing policies of equipment manufacturers, and price competition from
other lessors and finance companies. Additionally, the growth in leasing volume
during the last three fiscal quarters has the effect of increasing the
proportion of leases for new equipment ("New Leases") to total leases. New
Leases traditionally have lower earnings contributions than leases for
remarketed equipment. As a result, increasing lease volume initially has the
impact of putting pressure on leasing margins.
Business Outlook
- ----------------
Leasing volume, as measured by the cost of equipment placed on lease, increased
in the three and six months ended March 31, 1997 as compared to both the year
earlier periods and the prior quarter. Lease volume in the current quarter was
the second highest quarterly volume level in the Company's history, second only
to the fourth quarter of fiscal 1996. The growth in leasing volume is expected
to have a positive impact on leasing revenue in future periods and will provide
equipment for remarketing.
Cost of equipment placed on lease was $754 million during the quarter ended
March 31, 1997. This compares to cost of equipment placed on lease of $580
million and $686 million during the quarters ended March 31, 1996 and December
31, 1996, respectively. During the six months ended March 31, 1997, cost of
equipment placed on lease totaled $1.4 billion compared to $1.1 billion during
the six months ended March 31, 1996. In the current quarter, Information
Technology Services (as defined in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996) had cost of equipment placed on lease of
$656 million, compared to $485 million in the year earlier quarter. The increase
was due to an increase in leasing of distributed systems equipment, both
domestically and internationally. The growth in distributed systems reflects
industry trends in information technology. Large systems equipment volume
increased to $224 million in the current period compared to $198 million in the
prior year period. Diversified Technology Services (as defined in the Company's
Annual Report on Form 10-K for the year ended September 30, 1996) had cost of
equipment placed on lease of $98 million, compared to $94 million in the year
earlier period.
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<PAGE>
Remarketing activity, an important contributor to quarterly earnings, increased
compared to the second quarter of fiscal 1996, although it was below the record
level of activity achieved in the fourth quarter of fiscal 1996. To meet its
quarterly earnings goals, remarketing contributions have to be at approximately
the level achieved in the current fiscal quarter. While the Company is devoting
resources to its remarketing activities, there can be no assurance that the
Company will achieve the appropriate level of activity necessary to meet the
Company's desired operating results.
Continuity and Network Services had its sixth consecutive record quarter with
pretax earnings of $14 million. This compares to pretax earnings of $13 million
in the first quarter of the current fiscal year and $10 million in the same
quarter of the prior fiscal year. Revenues increased 9% and 14% over the same
three and six month periods of the prior year. Revenues from operations in
Europe grew 21% and 24% over the similar three and six month periods of fiscal
1996, while pretax earnings from Europe more than doubled over the previous six
month period. The Company continued to invest significant additional capital to
upgrade product and enhance future revenues. In the first half of the fiscal
year, capital expenditures were $29 million, including $5 million in Europe.
This includes additions in Large Systems, Mid-Range Systems, Network Products
and expansion of Workarea to more than twenty-five locations. It also includes
the Company's initial entry into Trading Floor continuity operations with the
addition of facilities in Rutherford, New Jersey and Minneapolis, Minnesota.
Revenue backlog in the Network Services area grew by over $4 million in the
quarter to a total of $72 million. Additionally, Continuity and Network Services
continues to focus on cost containment to maintain and improve margins. The
Company believes that the earnings contributions from services should be greater
than the Company is currently achieving, and accordingly, the Company is
devoting additional resources and efforts to increasing service revenues.
Three months ended March 31, 1997
- ---------------------------------
Total revenue for the three months ended March 31, 1997 was $690 million,
including the $25 million litigation settlement (see following discussion),
compared to $581 million in the prior year quarter and $633 million in the
quarter ended December 31, 1996. The increase in the current quarter compared to
the prior year quarter was primarily due to higher total leasing revenue,
principally from operating leases. Total leasing revenue of $506 million for the
quarter ended March 31, 1997 represented an increase of 21% compared to the year
earlier period. Sales-type revenue increased 39% compared to the year earlier
quarter, reflecting the Company's emphasis on remarketing.
The increase in New Leases, particularly during the last twelve months, coupled
with lower margins on large systems transactions, has resulted in lower margins
on leasing, particularly for operating leases. Operating lease revenue minus
operating lease cost was $86 million, or 21.4% of operating lease revenue
(collectively, the "Operating Lease Margin"), and $81 million, or 24.5% of
operating lease revenue, in the three months ended March 31, 1997 and 1996,
respectively. The Operating Lease Margin was $85 million, or 21.8% in the
quarter ended December 31, 1996. Because of the expected high levels of leasing
volume and the expectation that large systems margins will continue at or below
current levels, the Company expects continued pressure on leasing margins
throughout the remainder of fiscal 1997, and possibly beyond.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $59 million in the second quarter of fiscal 1997 compared to
$74 million in the year earlier quarter. The decrease in sales revenue in the
current quarter is primarily due to reduced sales and sales revenue per unit on
large systems. Sales from distributed systems equipment which generally have
higher margins as compared to large system sales, increased in the current year
period compared to the year earlier period. Margins on sales were 17% and 20% in
the quarters ended March 31, 1997 and 1996, respectively.
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<PAGE>
Revenue from continuity and network services activities for the three months
ended March 31, 1997 and 1996 was $85 million and $78 million, respectively, a
9% increase. Cost of continuity and network services activities for the three
months ended March 31, 1997 was $71 million and $68 million, respectively, a 4%
increase.
Other revenue for the three months ended March 31, 1997 and 1996 was $40 million
and $11 million, respectively. Other revenue for the three months ended March
31, 1997 includes a gain of $25 million ($16 million after-tax, or $.20 per
common share) resulting from the receipt of amounts in settlement of litigation.
Revenue from the sale of equity positions held as a result of the Company's
lease financing transactions with early-stage high technology companies
(referred to as Comdisco Ventures, part of the Company's Diversified
Technologies Group) was $1 million and $3 million in the quarters ended March
31, 1997 and 1996, respectively. In addition, in the second quarter of fiscal
1997, the Company recorded approximately $10 million of gains from the sale of
other investments owned by the Company.
Total costs and expenses for the quarter ended March 31, 1997 was $638 million
compared to $536 million in the prior year period. The increase in total costs
and expenses is primarily due to the growth in leasing volume including higher
interest expense, increased leasing costs related to increasing operating lease
revenue and a one-time charge of $25 million (see discussion below).
In the second quarter of fiscal 1997, the Company recorded a noncash,
non-operating charge of $25 million ($16 million after-tax, or $.20 per common
share) as a one-time addition to the equipment valuation allowance. The addition
to the equipment valuation allowance reflects the surge in distributed equipment
volume during the last three fiscal quarters (a trend that is expected to
continue in the near-term), the rapid level of technological change associated
with such equipment, continued declines in the fair market value of large
systems and the application of the Company's disciplines and analysis of its
leased assets. The Company believes this analytical approach is conservative.
Interest expense for the three months ended March 31, 1997 totaled $73 million
in comparison to $65 million in the quarter ended March 31, 1996 and $73 million
in the quarter ended December 31, 1996. The increase in the current quarter
compared to the year earlier quarter is due to higher average daily borrowings
resulting from increased leased assets at September 30, 1996 and an increase in
equipment purchased for lease during both the current quarter and the first
fiscal quarter compared to the year earlier periods.
Six Months Ended March 31, 1997
- -------------------------------
Total revenue was $1.3 billion and $1.1 billion for the six months ended March
31, 1997 and 1996, respectively. Total leasing revenue of $996 million for the
six months ended March 31, 1997, represented an increase of 22% compared to the
year earlier period.
The Operating Lease Margin was $171 million, or 21.6% of operating lease
revenue, and $162 million, or 25.1% of operating lease revenue, in the six
months ended March 31, 1997 and 1996, respectively. The increase in lease
volume, particularly during the last twelve months, coupled with lower margins
on large systems transactions, has resulted in lower margins on leasing,
particularly for operating leases.
Selling, general and administrative expenses totaled $120 million for the six
months ended March 31, 1997 and 1996. The Company has focused its operational
efforts on cost containment and has been able to manage the growth in its leased
assets without incurring additional selling, general and administrative
expenses.
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<PAGE>
Interest expense was $146 million for the six months ended March 31, 1997 as
compared to $130 million for the year earlier period. The increase in interest
expense is primarily due to higher average daily borrowings offset by lower
interest rates.
Financial Condition
- -------------------
The Company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. The Company utilizes a variety of financial instruments
to fund its short and long-term needs.
Capital expenditures for equipment are generally financed by cash provided by
operating activities, recourse debt, or by assigning the noncancelable lease
rentals to various financial institutions at fixed interest rates on a
nonrecourse basis. Cash provided by operating activities for the six months
ended March 31, 1997 and 1996 was $1.1 billion. Cash provided by operations has
been used to finance equipment purchases and, accordingly, had a positive impact
on the level of borrowing required to support the Company's investment in its
lease portfolio. The Company expects this trend to continue, with cash flow from
leasing and remarketing reinvested in the equipment portfolio.
Note on Forward-Looking Information
- -----------------------------------
Certain statements in this Form 10-Q and in the future filings by the Company
with the Securities and Exchange Commission and in the Company's written and
oral statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. The words "believe", "expect" and "anticipate" and
similar expressions identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events and
financial performance, but are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Examples of
such uncertainties include, but are not limited to, the volume of New Leases,
changes in customer demand and requirements, financial mix of leases written,
new product announcements, interest rate fluctuations, changes in federal income
tax laws and regulations, competition, unanticipated expenses and delays in the
integration of newly-acquired businesses, industry specific factors and world
wide economic and business conditions. The growth in leasing volume during the
last three fiscal quarters has increased the proportion of leases for new
equipment to total leases. New Leases traditionally have lower earnings
contributions than leases for remarketed equipment. Accordingly, the increase in
lease volume has put pressure on leasing margins. The financial mix of leases
written in a quarter is a result of a combination of factors, including, but not
limited to, changes in customer demands and/or requirements, new product
announcements, price changes, changes in delivery dates, changes in maintenance
policies and the pricing policies of equipment manufacturers, and price
competition from other lessors. The Company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
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<PAGE>
Recently Issued Professional Accounting Standards
- -------------------------------------------------
Statement of Financial Accounting Standards No. 128, Earnings Per Share, was
issued in February 1997. The Company will be required to adopt the standard in
fiscal 1998 (earlier adoption is prohibited). The standard adopts a simpler
calculation methodology for determining number of shares outstanding. Had
earnings per share been determined consistent with Statement of Financial
Accounting Standards No. 128, the Company's earnings per common and common
equivalent share ("EPS") would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
------------ -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
As reported ................................. $.38 $.33 $.75 $.64
Pro forma - basic EPS ....................... .41 .34 .80 .67
Pro forma - diluted EPS ..................... .38 .33 .75 .64
</TABLE>
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<PAGE>
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Stockholders was held on January 21, 1997.
b) The four nominees, C. Keith Hartley, Rick Kash, William N. Pontikes and Jack
Slevin listed in the Company's Notice of Annual Meeting of Stockholders and
Proxy Statement dated and mailed December 20, 1996 were elected to the Board of
Directors of the Company for a term of three years (all share references reflect
the three-for-two stock split authorized by the Board of Directors on May 6,
1997).
Nominee Votes Cast For Percent of Outstanding Shares
------- -------------- -----------------------------
C. Keith Hartley 61,275,249 84%
Rick Kash 61,240,011 84%
William N. Pontikes 61,271,244 84%
Jack Slevin 61,276,103 84%
c) As set forth in the Company's Notice of Annual Meeting of Stockholders and
Proxy Statement dated and mailed December 20, 1996, as Item 2, approval of KPMG
Peat Marwick LLP, independent certified public accountants, as auditors, to
audit the financial statements for fiscal 1997 and to perform other accounting
services, as appropriate. There were 61,871,265 (84%) common shares voted for
this proposal, 72,093 (less than 1%) common shares voted against, 60,882 (less
than 1%) common shares abstained and 11,356,734 (16%) were not voted (all share
references reflect the three-for-two stock split authorized by the Board of
Directors on May 6, 1997).
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit No. Description of Exhibit
3.01 Restated Certificate of Incorporation of Registrant dated
February 12, 1988
Incorporated by reference to Exhibit 4.1 filed with the
Company's Registration Statement on Forms S-8 and S-3, File No.
33-20715, filed March 8, 1988.
3.02 By-Laws of Registrant dated July 23, 1996
Incorporated by reference to Exhibit 4(b) filed with the
Company's Registration Statement on Form S-8 dated September
25, 1996, as filed with the Commission September 26, 1996,
File No.
1-7725.
3.03 Certificate of Designations with respect to the Company's 8
3/4% Cumulative Preferred Stock, Series A, as filed with the
Secretary of State of Delaware on September 18, 1992
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated September 17, 1992,
as filed with the Commission October 9, 1992, File No. 1-7725.
3.04 Certificate of Designations with respect to the Company's 8
3/4% Cumulative Preferred Stock, Series B, as filed with the
Secretary of the State of Delaware on July 2, 1994.
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated June 30, 1994, as
filed with the Commission July 21, 1994, File No. 1-7725.
4.01 Shareholder Rights Agreement dated November 18, 1987, as
amended and restated as of November 7, 1994, between Comdisco,
Inc. and Chemical Bank, as Rights Agent, which includes as
Exhibit A thereto the Form of Rights Certificate
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K, filed on December 6,
1994, File No. 1-7725.
4.02 Indenture Agreement between Registrant and Yasuda Bank and
Trust Company (USA), as Trustee dated as of December 1, 1995
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated January 12, 1996, as
filed with the Commission on January 17, 1996, File No. 1-7725,
the copy of the Indenture dated as of December 1, 1995 between
the Registrant and Yasuda Bank and Trust Company (USA), as
Trustee.
11 Computation of Earnings Per Common Share
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
-15-
<PAGE>
b) Reports on Form 8-K:
On May 1, 1997, the Company filed a current report on Form 8-K,
dated May 1, 1997, reporting Item 7. Financial Statements and
Exhibits. The filing was the consolidated statements of
earnings for the three and six months ended March 31, 1997 and
1996.
On May 7, 1997, the Company filed a current report on Form 8-K,
dated May 6, 1997, reporting Item 7. Financial Statements and
Exhibits. The filing contained exhibits relating to the
Company's 6.50% Notes Due April 30, 1999.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: May 15, 1997 /s/ John J. Vosicky
-------------------
John J. Vosicky
Executive Vice President and
Chief Financial Officer
-17-
Comdisco, Inc. and Subsidiaries Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
Average shares used in computing net earnings per common and common equivalent
share were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
March 31 March 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding ..................................................... 73 75 73 76
Effect of dilutive options ..................................................... 5 4 5 4
---- ---- ---- ----
Total ...................................................................... 78 79 78 80
==== ==== ==== ====
Net earnings to
common stockholders ....................................................... $ 31 $26 $59 $51
==== ==== ==== ====
Net earnings per
common and common equivalent share ............................................. $.38 $.33 $.75 $.64
==== ==== ==== ====
</TABLE>
On May 6, 1997, the Board of Directors authorized a three-for-two split of the
Company's common stock to be distributed on June 16, 1997 to holders of record
on May 23, 1997. All data with respect to earnings per common share, dividends
per common share, and weighted average number of common shares outstanding has
been retroactively adjusted to reflect the three-for-two split.
-18-
Comdisco, Inc. and Subsidiaries Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Six months ended
March 31 For the years ended September 30,
----------- ---------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense <F1> ......................................................... $147 $132 $267 $278 $266 $295 $355
Approximate portion of
rental expense representative
of an interest factor ........................................................ 2 5 7 11 13 22 29
---- ---- ---- ---- ---- ---- ----
Fixed charges .................................................................. 149 137 274 289 279 317 384
Earnings from continuing operations
before income taxes and extraordinary item, and cumulative
effect of change in accounting principle, net of preferred stock dividends .... 97 85 176 160 80 137 34
---- ---- ---- ---- ---- ---- ----
Earnings from continuing operations before income taxes, extraordinary item,
cumulative effect of change in accounting principle, net of
preferred stock dividend ....................................................... $246 $222 $450 $449 $359 $454 $418
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges ............................................... 1.65 1.62 1.64 1.55 1.29 1.43 1.09
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases ............................................................ $ 4 $ 10 $ 14 $ 22 $ 30 $ 57 $ 77
Office space, furniture, etc ................................................... 3 4 8 10 8 8 10
---- ---- ---- ---- ---- ---- ----
Total ....................................................................... $ 7 $ 14 $ 22 $ 32 $ 38 $ 65 $ 87
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense ....................................................... $ 2 $ 5 $ 7 $ 11 $ 13 $ 22 $ 29
==== ==== ==== ==== ==== ==== ====
<FN>
<F1>Includes interest expense incurred by continuity and network services and
included in continuity and network services expenses on the statements of earnings.
</FN>
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> Oct-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 279
<ALLOWANCES> 20
<INVENTORY> 182
<CURRENT-ASSETS> 506
<PP&E> 6,706
<DEPRECIATION> 1,808
<TOTAL-ASSETS> 5,922
<CURRENT-LIABILITIES> 1,428
<BONDS> 1,980
0
89
<COMMON> 7
<OTHER-SE> 725
<TOTAL-LIABILITY-AND-EQUITY> 5,922
<SALES> 996
<TOTAL-REVENUES> 1,323
<CGS> 710
<TOTAL-COSTS> 1,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 101
<INCOME-TAX> 38
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59
<EPS-PRIMARY> 0.750
<EPS-DILUTED> 0.750
</TABLE>
